Bad times ahead for PC market?

Intel Corp trimmed its forecast for 2011 personal computer unit sales, warning of softness in mature markets and sending its shares down more than 1 percent even as its revenue outlook beat estimates.

The top maker of microprocessors for PCs now expects 8 to 10 percent growth in unit shipments of computers this year, down from the low double-digits it had stuck to earlier in defiance of fears that market momentum was decelerating.

Intel’s processors are used in 80 percent of the world’s PCs, but mobile devices from Apple Inc’s iPad to Google Inc Android smartphones are eating into laptop sales and Intel is struggling to gain a foothold in the fast-expanding mobile market.

“The mature market consumer segment is still soft, but the emerging-market consumer segment is healthy and growing,” CEO Paul Otellini told analysts on a conference call.

Intel’s tepid PC forecast and concerns about the economy overshadowed a solid quarter for the chip giant, with quarterly results and revenue forecast both trumping Wall Street’s expectations.

The Santa Clara, California expects average selling prices for its chips to increase as families in China and other emerging markets that buying their first ever-computers choose fairly high-quality PCs that are built to last.

Intel’s upbeat results followed positive quarterly earnings from Apple and International Business Machines Corp earlier this week.

But doubts about high U.S. unemployment, the risk of a European financial crisis, climbing inventories and sluggish PC sales weighed on sentiment — and share prices — of Intel and other chip makers.

“It does happen that semiconductor companies are further back in the supply chain and they don’t see the end-user demand. They just see the orders coming from their customers and sometimes they can be surprised,” said Stifel Nicolaus analyst Kevin Cassidy.

INSISTENCE

Intel’s gains in the second quarter were driven by the PC group, its largest segment, and the data center group, which has been expanding quickly in part because of cloud computing.

Chief Executive Paul Otellini said he is confident tablets will not replace small laptop computers, even after Apple’s blockbuster iPad sales in the second quarter.

He said Intel, which has failed so far to gain traction in mobile gadgets, will be “hyper competitive” winning space for its processors in tablets using an upcoming version of Microsoft’s Windows operating system.

The company foresaw current-quarter revenue of about $14 billion, give or take $500 million, versus the $13.5 billion analysts expect on average.

“When we look across the broader worldwide supply chain for PCs and servers, what we see are inventory levels that are lean out there. People are managing things lean, they’re prudent,” Intel Chief Financial Officer Stacy Smith told Reuters.

Investors eyeing slow economies and red-hot sales of the iPad in recent months have insisted Intel’s outlook for PC growth is overly optimistic. Analysts had warned that Intel at some point may be forced to trim its estimate.

“Take a look at the headlines over the past couple of months, in terms of the global economic malaise. It’s hard to have any confidence in how they are going to deliver 7 percent growth sequentially,” said Evercore Partners analyst Patrick Wang.

Analysts on average had expected Intel’s revenue to rise to $13.5 billion in the current quarter, according to Thomson Reuters I/B/E/S, less than normal growth for this time of year.

Revenue in the June quarter was $13.1 billion, up 22 percent over the year-ago period and above the $12.8 billion expected by analysts, according to Thomson Reuters I/B/E/S.

Non-GAAP net income in the quarter was $3.2 billion, up 10 percent. Non-GAAP earnings per share were 59 cents, beating expectations of 51 cents.

Shares of Intel dipped 1.78 percent to $22.58 in extended trade after closing down 0.3 percent.

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